The Private Lender's Pre-Auction Checklist: Private Loan Documentation Best Practices to Avoid Enforcement Injunctions

At 9:30am on a Saturday morning in September 2018, a Victorian Supreme Court judge granted an injunction stopping a mortgagee auction scheduled for 11:00am that same day. The borrower’s evidence? A letter from a Hong Kong entity claiming “unconditional finance approval” for $36.5 million, despite that same letter requiring execution of loan documents and completion of “usual regulatory processes” before settlement.

The Six Bruce Pty Ltd v Jadig Finance Pty Ltd decision rattled private lenders across Melbourne. It demonstrated how quickly a court will intervene to protect a borrower’s equitable right of redemption, even when the refinancing evidence appears dubious. For lenders following best practice private lending Victoria protocols, this case offers a stark lesson: your pre-auction preparation must anticipate and neutralise injunction applications before they succeed.

Private Loan Documentation Best Practices: The Pre-Enforcement Foundation

The strength of your enforcement position depends entirely on documentation created months or years before default. Weak loan documents create gaps that borrowers and their lawyers will exploit.

Mortgage Registration and Priority

Confirm your mortgage registration on the Victorian Land Registry Services portal within 48 hours of settlement. An unregistered security position creates immediate problems. You cannot exercise mortgagee sale powers without registration. Worse, intervening interests may gain priority while your mortgage sits in the queue.

Check for caveats lodged after your mortgage registration. A caveat claiming an unregistered interest won’t defeat your registered mortgage, but it signals potential disputes that could generate injunction applications.

Default Events and Notice Provisions

Review your loan agreement’s default provisions before issuing any notice. Common errors include:

• Calling default on a ground not specified in the agreement
• Using incorrect notice addresses (borrowers change addresses; your documents may be outdated)
• Failing to specify the exact default event with dates and amounts
• Not allowing the contractual cure period before accelerating the debt

The ATO’s guidance on loan documentation requirements, while focused on related-party arrangements, provides useful benchmarks for documentation standards that courts expect to see.

The 35-Day Pre-Auction Timeline

Most Victorian mortgages require 30 days’ notice before exercising power of sale. Build your timeline backwards from your target auction date, adding buffer days for complications.

Day 1-5: Notice of Default Service

Serve your Notice of Default by registered post and email (if your mortgage permits electronic service). Keep Australia Post tracking receipts. If serving personally, use a process server who can provide an affidavit of service.

The notice must specify:

• The exact default (missed payment dates, amounts, or other breach)
• The total amount required to cure the default
• The deadline for cure (matching your contractual notice period)
• Your intention to exercise power of sale if default continues

Day 6-30: The Waiting Period

This period is not passive. Monitor communications from the borrower carefully. If they claim to be arranging refinancing, request written details:

• Name and contact details of the proposed lender
• Expected settlement date
• Any conditions attached to the approval
• Evidence the refinance amount covers your debt plus costs

Document every communication. If the borrower provides vague assurances without specifics, your file should reflect their failure to provide concrete evidence of genuine refinancing prospects.

Day 31-35: Pre-Auction Preparation

Engage your auctioneer and confirm the auction date, time, and venue. In Melbourne, weekend auctions at the property remain standard for residential assets. Commercial properties may suit weekday auctions at auction rooms.

Prepare your auction documents:

• Contract of sale (with special conditions for mortgagee sale)
• Section 32 vendor statement
• Authority to bid forms
• Reserve price instructions (in writing to the auctioneer)

The Unconscionability Defence: What Courts Actually Consider

In Six Bruce, the court found a serious question to be tried on unconscionability because the lender was allegedly denying the borrower’s right of redemption. Understanding how courts assess this defence helps you structure your enforcement to minimise exposure.

The Right of Redemption

Every mortgagor has an equitable right to redeem the mortgage by paying the debt in full. This right survives until the property is actually sold. Courts protect this right jealously.

The question becomes: is your exercise of power of sale unconscionable because it defeats a genuine redemption opportunity?

Courts consider:

• Whether the borrower has a realistic prospect of refinancing
• Whether you have unreasonably refused extensions or payment arrangements
• Whether your conduct suggests you want the property rather than repayment
• The timing and circumstances of the sale

Building Your Defence File

Create a chronological record showing:

• Multiple defaults over time (not just the triggering default)
• Previous extensions or indulgences you granted
• Borrower promises to refinance that failed to materialise
• Your reasonable responses to refinancing claims
• Interest and costs accruing during delays

If a borrower presents a finance approval letter, analyse it critically. The Six Bruce “unconditional” approval contained multiple conditions. Your analysis should identify:

• Settlement timeframes (if beyond your auction date, the approval may not protect redemption)
• Conditions precedent (execution of documents, regulatory approvals, valuations)
• The lender’s identity and legitimacy (unfamiliar entities warrant scepticism)
• Whether the approved amount actually covers your debt

The Interlocutory Injunction Test

To obtain an injunction, borrowers must satisfy three elements:

Prima facie case: A serious question to be tried. Courts set this bar low. If the borrower can articulate an arguable legal claim, this element is usually satisfied.

Balance of convenience: Whether granting or refusing the injunction causes greater harm. Courts weigh the borrower’s potential loss of property against your delay in receiving funds. Property loss usually weighs heavily.

Damages inadequacy: Whether monetary compensation could remedy the harm. Losing a property development, particularly one with personal involvement, is often treated as not adequately compensable in damages.

Your best defence focuses on the second element. Demonstrate that the borrower’s refinancing claim is illusory. Show that delays cause you genuine prejudice through accruing interest and costs. Evidence that the borrower has made similar claims before without performing strengthens your position.

How to Protect Private Lenders Australia: Day-of-Auction Protocols

Have your solicitor available by phone on auction morning. If the borrower’s lawyers contact you with an injunction threat, you need immediate legal advice on whether to proceed or postpone.

A voluntary postponement is often cheaper than defending an urgent injunction application. If the borrower’s refinancing evidence looks credible, a two-week postponement with strict conditions (written finance approval, deposit of costs, undertaking as to damages) may protect your position better than forcing a court battle.

If you proceed and an injunction application is filed, attend court (through your solicitor) and contest the application vigorously. Present your evidence of borrower defaults, failed refinancing attempts, and the conditional nature of any finance approval.

The Undertaking as to Damages

Courts granting interlocutory injunctions typically require the applicant to give an undertaking as to damages. This means the borrower promises to compensate you if the injunction is later found to have been wrongly granted.

Challenge the borrower’s capacity to honour this undertaking. If they cannot pay their existing debt, how will they compensate you for auction costs, continued interest, and lost sale opportunity? A borrower without financial substance to back their undertaking should not receive injunctive relief.

Post-Injunction Recovery

If an injunction is granted, immediately calendar the return date for the substantive hearing. Prepare your evidence thoroughly. The injunction is temporary. Your goal shifts to demonstrating at the final hearing that the borrower’s refinancing never materialised and your sale should proceed.

Track the borrower’s refinancing progress. Request updates. If their claimed finance approval lapses or conditions are not satisfied, document this. Apply to dissolve the injunction based on changed circumstances.

The ASIC guidance on responsible lending applies primarily to regulated credit providers, but courts may consider whether a borrower’s claimed refinancing complies with lending standards. A refinancing that would breach responsible lending obligations may not represent a genuine redemption opportunity.

Structural Protections in Your Loan Documents

Prevention beats cure. When documenting new loans, include provisions that strengthen your enforcement position:

• Clear default definitions with specific monetary thresholds
• Short cure periods (14 days is common; 30 days gives borrowers more time to manufacture injunction evidence)
• Acknowledgment clauses where the borrower confirms no refinancing is in progress at settlement
• Costs provisions covering legal fees for enforcement and injunction defence
• Waiver clauses (carefully drafted to survive unconscionability challenges)

Your loan documentation should also require borrowers to notify you of any refinancing approaches. This creates a contractual obligation that, if breached, undermines their later claims of genuine refinancing prospects.

The Six Bruce decision caught many Melbourne private lenders off guard. It need not catch you. Systematic pre-auction preparation, thorough documentation, and clear-eyed assessment of borrower refinancing claims will protect most sales from injunction. When injunctions do issue, your preparation ensures you can contest them effectively and recover your position at the final hearing.

About Blaine HattieBlaine Hattie is a Principal in Commercial Transactions at Sutton Laurence King Lawyers. He advises businesses on transactions and finance with a special interest in technology, cybersecurity, digital media, defamation, and artificial intelligence.